The Great Indian FDI Policy: Revamped

The latest print release of the Press Information Bureau audaciously hails India as the “most open economy in the world”. This comes with the announcement of the government on the 20th of June, 2016, which brings in breakthrough amendments in the current FDI policy. With increased sectoral caps and further drift towards the automatic sector being the highlights, these changes aim to accelerate foreign investment in India.

The major revamps are as follows:

  1. Defence Sector: The latest policy now allows FDI in the defence sector up to 100%. An investment beyond 49% would require the approval of the government. Furthermore, the mandate for the investors to give access to ‘state-of-art’ technology for investments over 49% has been done away with. These changes have also been made applicable to the manufacturing of small arms and ammunitions covered under the Arms Act, 1959.

This could well be a welcome change for the defence sector, which could manage a foreign investment of only INR 64 Lakhs in the previous financial year.

  1. Trading of food products: A radical change introduced in this arena is the permission of up to 100% FDI under the approval route, for the trading of the food products manufactured in India. This includes their trading through e-commerce as well.

  1. Civil Aviation: The latest announcement allows 100% FDI in indigenous airlines. Moreover, 100% FDI is now permitted in the existing airport projects (Brownfield avenues) through the automatic route, which was limited to 74% so far. These changes should intermingle well with the current aviation policy. Together, they will aid the modernization of the existing airports and will help ease the pressure on them.

  1. Pharmaceutical Sector: In the Brownfield pharma avenues, the government has now allowed up to 74% FDI under the automatic route. However, for an investment beyond 74%, the approval of the government would be required.

  1. Animal Husbandry: The latest amendment removes the requirement of ‘controlled conditions’ for FDI in Animal Husbandry, Pisciculture, Aquaculture and Apiculture. It has trimmed the earlier provision to allow 100% FDI in these sectors through the automatic route, without any conditions.

  1. Establishment of branch/liaison/project office: This amendment applies to the entities which are into the businesses of Defence, Telecom, Private Security or Information and Broadcasting. It lifts off the mandate to get additional permissions from the RBI or other nodal security agencies, if an approval from the FIPB or the concerned Ministry has been taken.

  1. Private Security Agencies: The government has now allowed FDI up to 49% through the automatic route in this sector. For an investment above 49% and up to 74%, the approval from the government would be required. This liberalizes the current provision, which allows only up to 49% FDI through the approval route.

  1. Broadcasting Carriage Services: In order to develop this sector, the government has announced a cap of 100% on FDI via the automatic route, on listed activities. These activities include teleports, DTH services, cable networks and mobile TV.

  1. Single Brand Retail Trading: On the request of single brand retail entities like Apple Inc., the local sourcing norms on such entities have now been relaxed, provided their products have ‘state-of-art’ and ‘cutting-edge technology’.

The changes have stirred an immediate positivity in the market, with the Sensex ballooning up by 241 points right after the announcement. However, its long-term effects, primarily on the defence sector, can prove to be intriguing.

Relevant Links: (PIB Release) (FDI Policy, 2016) (Press Note of November, 2015)